The downside
Two critical indicators of the level of economic activity, retail and wholesale sales, have not enjoyed a bright start to 2024. January and February's year-on-year figures were marginally lower, while new vehicle sales remain under pressure. Unfortunately, manufacturing capacity utilisation also took a knock in the first quarter of the year and now stands at 78.5%.
The main reason for the decline in the latter indicator is insufficient demand. This, in turn, is a direct result of the highest interest rates in 14 years, which have raised the household debt cost burden to 9% of disposable income (from 8.5% four years ago).
It is a pity that the Monetary Policy Committee of the Reserve Bank continues to focus on the midpoint of the target range for inflation (4.5%) instead of appreciating the fact that the consumer price index has been comfortably within the range of 3% to 6% for ten successive months. Lowering interest rates and following a policy approach that encourages growth and employment creation has become imperative.
The upside
Sound performance by JSE
Following a poor start to 2024, the all-share index (Alsi) on the Johannesburg Stock Exchange has rebounded strongly, ending April at above 76,000 – a gain of more than 9% over the index value in September last year. The April Alsi value was 71% higher than at the end of the disastrous first quarter of 2020 when the uncertainty over the extent of the Covid pandemic and the lockdown regulations decimated share prices in bourses worldwide.
A recent survey amongst domestic fund managers in South Africa has indicated a renewed appetite for local equities. Against the background of impressive dividend yields and mostly single-digit price/earnings ratios for several blue-chip resource sector stocks, this is not surprising.
Since the end of March 2020, the JSE Alsi has increased by an annual average of 13.7%, significantly higher than the average interest rates on money and capital markets. With relatively stable global economic growth foreseen over the medium term and the world's most populous country, India, with the world's GDP growing by more than 7% in 2024, the future for several resource stocks on the JSE looks rosy.
Trade surplus maintained
After a disappointing start to 2024, South Africa's exports surged by more than Africa's 61 billion in February and increased marginally in March. At almost R470 billion, total exports for the 1st quarter of the year were sufficient to record a cumulative trade balance of R11 billion, compared to a deficit of more than R5 billion for the first three months of 2023.
The trade section for minerals, which includes iron ore and coal, remained solidly in the number one position as the most significant contributor to foreign exchange earnings, followed by precious metals and agriculture & food.
Vehicles and spares came in at number four, but in terms of year-on-year growth, this critical section outperformed the rest of the top ten by a considerable margin.
Any surplus in the country's account most affects the rand exchange rate, which could help lower inflationary pressures in the economy.
A whole month without load-shedding
For the first time in several years, South Africa enjoyed uninterrupted electricity during April, mainly due to the expansion of solar power installations. Eskom has announced that its energy availability factor has reached 65.5 per cent for the first time since 2021.
According to Isabel Fick, the head of EsEskom's systems operations, the cocontrEskom' of solar power plants and rooftop solar installations allowed Eskom to replenish its pumped storage capacity during the day rather than at night. In 2023, about 2,500 MW of rooftop solar capacity was added, coupled with battery storage, increasing the installed base to above 5,400 MW.
An estimated 2,800 MW of photovoltaic solar power is already connected to the Eskom grid. The next stage of harnessing more solar power will focus on two crucial issues: expanding grid capacity and designing a model allowing surplus solar capacity from independent power producers. Business chambers around the country have welcomed the renewed stability of electricity supply, which has raised productivity and lowered input costs.
On Balance by Dr Roelof Botha deliberately emphasises positive news that, more often than not, confirms the resilience of the South African economy and the immense scope for new business opportunities.
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